Wednesday, March 21, 2007

Crashachusetts Existing Home Sales: February 2007

So, it appears that last month’s optimistic market “rebound” sentiment was short lived.

As I had noted last month, the Northeast had experienced exceptionally warm weather in January most likely resulting in an increase in the number of days suitable for home sales when compared to an average January.

This inevitably resulted in a bump up in residential real estate activity, noticeably affecting indicators from home sales to residential construction permits.

The weather in February, on the other hand, was far more typical for winter in the Northeast with a few snow storms and lots of bitter cold days pushing single family homes sales 12.2% below January’s results and holding reasonably flat compared to the February 2006 results.

These results become even more interesting when you consider that the February’s slower sales came even as the median home price declined 4.4% from January and 4.1% as compared to February 2006.

Additionally, although February registered a 17% decrease to inventory of residential properties (single family and condos combined… unfortunately MAR seems to no longer report the inventory and supply statistics separately) as compared to February 2006, there has been a 15% increase to the number of months supply since January indicating again that the sales pace is slowing.

In fact, the average number of “days on the market” now stands at 148 days compared to 115 days for February 2006.

It now appears that the Spring market may present a pretty ugly spectacle as I believe that inventory levels may significantly exceed last years results.

It appeared to me, at least anecdotally, that an unusually large number of listings were pulled from the market during the October-November timeframe, far more that I had witnessed in the fall of 2005.

In a matter of days, the number of listings had been more than halved in virtually every town inside 128.

Those listings have yet to resurface and, although this is the typical pattern seen during this time of year, I believe that, in the face of an uncertain housing market, sellers that got stuck with stale listings last year are attempting to time their listings to a greater extent than has been seen in past seasons.

It’s still fairly basic, but now that I have nearly a years worth of data captured, Ill soon add some more advanced analytical functionality.

Finally, the Federal Reserve Bank of Boston recently released a paper titled “Understanding Foreclosures in Massachusetts” within which the authors discuss at length the sudden increase in foreclose rates seen recently.

Massachusetts has now exceeded New England’s average for foreclosure rates and is quickly closing in on the national average as well.

The paper attributes this increase to both an increase in the use of risky loan products as well as the decline of the housing market.

“Since the 1990s, products featuring changing monthly payments have grown increasingly popular. These can include adjustable-rate mortgages (ARMs), where monthly interest rates and payments size are linked to some index, such as the prime rate; or products with features like “teaser rates” where initial interest rates are low, but are set to increase after fixed time periods. While some ARMs are structured to have only moderate shifts in monthly payments, some have dramatic increases, often occurring a fairly short time after origination.”

“The weakening housing market has likely played a strong role in the recent foreclosure increase. Since 2004, rates of housing price appreciation in Massachusetts and New England have slowed dramatically, and by some estimates, property values have declined.”

The following is one interesting chart (click for larger version) from the paper that shows how in 2003, when affordability really hit the wall, the percentage of market share of traditional fixed rate loans dropped nearly 15% from their 5 year average while prime ARMs and subprime products simultaneously picked up that 15% slack. This resulted in roughly 30% of all loans being either a prime ARM or subprime product.

As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current market trend.

February’s Key Statistics:

Single family sales declined 12.2% from January and increased 1.2% as compared to February 2006

Single family median price declined 4.4% from January and declined 4.1% as compared to February 2006

Condo sales declined 0.6% from January and increased 4.5% as compared to February 2006

Condo Median Price increased 0.7% from January and declined 1.8% as compared to February 2006

The number of months supply of residential properties stands at 12.3 months.